Rising Fears of an Ethanol Bust

http://www.businessweek.com/bwdaily/dnflash/content/may2007/db20070508_850283.htm?chan=top+news_top+news+index_businessweek+exclusives

President George W. Bush's January, 2006, declaration that the U.S. is "addicted to oil" marked the beginning of a gold rush for corn growers: The government policies the comment helped spur have been a boon for the producers of corn-based ethanol, the all-American fuel that now displaces about 4% of U.S. gasoline supply. Over the past 18 months, farmers have rushed to plant more corn—and are set to produce a record crop this year—while small-time entrepreneurs and agricultural giants alike have built plants to expand capacity. A handful of initial public offerings have fed investors' desire to get in on the action.

But while farmers and producers remain bullish on corn ethanol's prospects, a once-enthusiastic Wall Street is growing skeptical. On May 1, the largest U.S. ethanol producer, Archer Daniels Midland (ADM), reported quarterly earnings that fell short of analyst expectations, citing higher corn costs as a problem. ADM shares tumbled 5.4% that day to close at $36.60 as investor disappointment spread throughout the sector. Shares of U.S. Bioenergy (USBE), Pacific Ethanol (PEIX), Andersons (ANDE), Aventine Renewable Energy (AVR), and VeraSun Energy (VSE) dipped 1% to 2%.

Lurking behind ADM's gloomy news are doubts about the future of corn ethanol. A growing number of analysts, once bullish on the product, are warning that an oversupply may be coming as soon as this year. On Apr. 27, a Lehman Brothers (LEH) report projected that production will outstrip demand in the second half of 2007, measuring the domestic thirst for corn ethanol at 420,000 barrels per day but supply at 445,000 barrels a day, mainly because the U.S. lacks the infrastructure to move the product to market.
"Chicken-and-Egg Problem"

"There's tremendous capacity coming online, but the infrastructure isn't there to keep up with it," says Michael Waldron, an oil markets research analyst at Lehman Brothers who co-authored the report. "We need a nationwide system to pipe it, and until that happens, we'll likely have an excess of product."

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and/or cellulose content are what matters.

The gas stations don't have the tanks for it, we don't have the water to grow it in the quantities we really need, and even if we did, most cars won't run on anything higher than E10 (90% gasoline, 10% ethanol). My relatively new 2006 Subaru has a warning in the owners manual advising owners that the car won't even run on that.

Not to mention, as once I had read somewhere, it takes 1.2 barrels of oil to make 1 barrel of ethanol. This is not cost effective for ethanol to be a viable substitute.

Once again, light rail - it'll help the oil (and global warming) issue immensely. It can be done; the only opposition is from people who can't see beyond next week's P&L statements.

http://www.pnas.org/cgi/content/abstract/0604600103v1

Environmental, economic, and energetic costs and benefits of biodiesel and ethanol biofuels

Abstract

Negative environmental consequences of fossil fuels and concerns about petroleum supplies have spurred the search for renewable transportation biofuels. To be a viable alternative, a biofuel should provide a net energy gain, have environmental benefits, be economically competitive, and be producible in large quantities without reducing food supplies. We use these criteria to evaluate, through life-cycle accounting, ethanol from corn grain and biodiesel from soybeans. Ethanol yields 25% more energy than the energy invested in its production, whereas biodiesel yields 93% more. Compared with ethanol, biodiesel releases just 1.0%, 8.3%, and 13% of the agricultural nitrogen, phosphorus, and pesticide pollutants, respectively, per net energy gain. Relative to the fossil fuels they displace, greenhouse gas emissions are reduced 12% by the production and combustion of ethanol and 41% by biodiesel. Biodiesel also releases less air pollutants per net energy gain than ethanol. These advantages of biodiesel over ethanol come from lower agricultural inputs and more efficient conversion of feedstocks to fuel. Neither biofuel can replace much petroleum without impacting food supplies. Even dedicating all U.S. corn and soybean production to biofuels would meet only 12% of gasoline demand and 6% of diesel demand. Until recent increases in petroleum prices, high production costs made biofuels unprofitable without subsidies. Biodiesel provides sufficient environmental advantages to merit subsidy. Transportation biofuels such as synfuel hydrocarbons or cellulosic ethanol, if produced from low-input biomass grown on agriculturally marginal land or from waste biomass, could provide much greater supplies and environmental benefits than food-based biofuels.

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It's not really a bad thing when rising corn prices hurt people living in poverty (some of these people are corn farmers, don't you know!) but when it hurts ADM profits, it's like "OH SHIT! EMERGENCY! EMERGENCY! WHO COULD HAVE SEEN THIS COMING!"

God Bless ADM, um, I mean America...

Any car that runs on gasoline can use 10% ethanol without any modification. In time more stations will offer E85 for flexible fuel vehicles. But it's stupid to forego displacing 5% to 8% of the gasoline supply while waiting for E85 pumps to be installed around the country.

Ethanol supply is definitely growing faster than the E85 pumps are being installed. Therefor, (if necessary) force the oil companies to blend all the E10 they can so we can start dispacing as much gasoline as possible. THere are plenty of people who would use E10 and start reducing exports of money for oil, if they could find it.

Anyone checked the price of gas lately? It's been rocketing up this year even though crude oil has only gone up about 4% or 5%. I see more mega profits for Exxon Mobil. Meanwhile ethanol prices have been coming down, because the newer plants producing ethanol are more efficient. the acres planted in corn have gone up about 16% this year and everyone expects to see corn prices continue to come down (USDA forecsting $3.10-$3.13 per bushel. Acreage in corn will rise to meet the demand. Cotton acreage across the south is dropping significantly (less export subsidies to be paid! - more subsistence farmers in Africa will have a chance to make a little bit more than just enough to survive.).

USDA is forecasting corn prices average for 2006-07 to be 3.10-3.13 per bushel with no price support payments:

http://www.ers.usda.gov/Data/PriceForecast/Data/Futmodcorn.xls#'2006-07 forecast'!A1


the total impact of ethanol is not just a factor of volume of ethanol. Ford is working with the startup created by the MIT engineers who designed the direct ethanol injection engine which gets up to 30% better mileage than typical gasoline powered car. They hope to have this engine ready for mass production by 2011 at an additional cost of about $600 - $1,000 per car (compare that to the premium for hybrids). http://www.greencarcongress.com/2006/10/startup_working.html

This engine only uses about 5% ethanol and 95% gasoline, so 10% of the fuel supply, used in this engine, would go a lot further in terms of gasoline consumption reduction. If all the cars on the road were using this engine, ethanol representing 5% of the total fuel supply would produce a 30% reduction in gasoline consumption (and a 30% reduction in GHGs from autos). We will be producing ethanol in a volume that will equal 5% of the total fuel supply in about 2 years(perhaps less than that).